The ins and outs of lump sum distributions, and whether to take them or not, are among the most common conundrums facing new retirees. Here are a few questions about the basics that I hear frequently and the answers I offer to them.

Q: Shouldn't I take a lump sum distribution when I retire?

A: In general, people and their spouses should review what's best for them. If a retiree has sufficient income to live without using their savings immediately, the lump sum can provide flexibility in spending and a potential estate. Or if a monthly income is most advantageous, then an annuity makes more sense. Everyone needs to think what's best for them and their family. From a purely mortality-neutral point of view, the answer for most of us is NO.

Q: But I'm told I can beat the returns and have more flexibility if I take a lump sum. What's that about?

A: If you take a lump sum, you still need to earn monthly income from it. How to go about getting that monthly income is the problem. You can buy an annuity, self-annuitize by withdrawing some amount each year, or hire a financial planner and work out a plan. More often than not, these are suboptimal alternatives that can sometimes lead directly to personal financial crises.

Q: Why is a lump sum not necessarily the way to go?

A: First of all, most of us tend to be horrible investors, too full of emotion and listening all too often to the loudest voices rather than the most logical. Think of the decision of in plan annuity versus out of plan annuity as the difference between wholesale and retail prices. If you take a lump sum and follow one of the three alternatives, you re really just trying to mimic what the plan would have otherwise provided, perhaps with a little extra flexibility in timing and amounts. But all your annuitizing will be done at retail price levels, i.e., paying retail costs for mutual funds within an IRA, or paying a planner for help, or buying an annuity. The difference in costs between wholesale and retail is usually around 25%-30%. This means that, if an annuity is right for you, by keeping the money inside the plan you ll actually get 25%-30% more than if you take a lump sum and then buy an annuity.

Q: What does all this mean?

A: The underlying point I m making is the great economic efficiencies of pension plan annuities: the retail cost versus wholesale cost mentioned above. Even many pension plans as they exist today can benefit from a review of retirement payout options that might make more sense for retirees. For example, taking some of your retirement benefit as an annuity (based perhaps on your identified fixed living expenses) and taking the rest as a lump sum offers great flexibility. Another option which addresses head on the concern that once I annuitize, whether inside a plan or by buying retail, there's a concern that if I die the next day, my heirs will lose out. In this case, resurrecting an annuity option, uncommon today in pension plans, is the refund annuity that includes a feature which guarantees lifetime income with a minimum payout of the original lump sum amount (less what's already been paid). There is great interest in lifetime income approaches in today's headlines and policy discussions. At the same time, there are many options which were once available which ought to be dusted off and included in those discussions.